From tech to banks, five lessons from Europe's Q2 earnings season
By Samuel Indyk and Lucy Raitano
LONDON, Aug 16 (Reuters) -European companies likely grew earnings for the first time in five quarters, but concerns about the strength of the consumer and the economic outlook have cast a pall over the second-quarter earnings season.
According to LSEG I/B/E/S data, Q2 earnings are expected to have increased 4.3% from the same period last year, the first quarterly rise since the first three months of 2023. Almost 55% of company results beat analyst estimates, broadly in line with a typical quarter.
Here are five key takeaways:
1/ EARNINGS MISSES PUNISHED
European companies which failed to meet expectations have been punished.
The median one-day share price reaction to financial results misses was a 4.4% drop, while the gain on a beat was only 2%, Morgan Stanley research shows.
"The reason Europe has had this negative price skew to earnings, which at one point was quite disproportionate to long-term history, is on the back of risk-off sentiment due to the recent market growth scare," said Morgan Stanley chief European equity strategist Marina Zavolock, noting, however, that the negative skew was starting to abate.
2/ CYCLICALS VS DEFENSIVES
Investors began rotating out of cyclical stocks into defensive ones in April, a trend that has accelerated in recent weeks in a sign that weaker growth is anticipated.
Sectors such as autos and travel and leisure usually rise or fall with economic activity, while investors generally see sectors such as utilities, consumer staples and health care as a safer bet during a downturn.
A basket of European cyclical stocks .MIEU0CY00PUS is up 2.2% since mid-April, underperforming defensives .MIEU0DE00PUS which have risen 10% in the same period.
"With worries about a hard landing resurfacing, poor performance for cyclicals may not be fully over," said Barclays head of European equity strategy Emmanuel Cau.
Shares in German auto firms BMW BMWG.DE and Volkswagen VOWG.DE slumped to multi-year lows in August as weak demand weighed.
"The autos sector is the poster child of the cyclical pullback in Europe," said Andreas Bruckner, European equity strategist at Bank of America Global Research. "The sector has had a disastrous couple of months in terms of performance, including a number of high profile profit warnings."
3/ LUXURY SECTOR HIT
Profit warnings from Burberry BRBY.L, Swatch UHR.S, Hugo Boss BOSSn.DE and other high-end names have been driven mainly by weakness in China, where Mamta Valechha, consumer discretionary analyst at wealth manager Quilter Cheviot, says luxury spending remains about 20% below pre-COVID levels.
This has dashed hopes of a recovery in the world's second biggest economy in the second half of the year.
"Any improvement in China consumer sentiment would need to come via policy efforts directed towards consumption," Valechha said. "This would perhaps lead to a strong recovery in luxury demand after two years or more of saving."
4/ BANKS REAP RATE REWARDS
European banks, hurt by the ultra-loose monetary policy of the past decade, are finally getting their moment in the sun thanks to the recent surge in interest rates.
The sector's earnings have grown over 15% in Q2, compared with 13% over Q1, according to LSEG I/B/E/S.
"Most sectors are seeing net downgrades at this point, but European banks and financials are still seeing net upgrades," said Citi's global equity strategist David Groman. "It's one sector where earnings momentum still looks really strong compared to the rest of the market."
European banking shares rose to their highest level in nine years in July .SX7P. They fell in early August as U.S. recession fears gripped markets but are still up more than 12% so far this year, outperforming the broader market .STOXX.
5/ TECH STRUGGLES
The tech sector was the biggest negative contributor to Europe's second quarter earnings growth, with a drop of almost 30% from the same period a year ago, LSEG I/B/E/S data showed.
But much of this year's expected growth has been pushed further out into 2025 and analysts remain upbeat.
ASML ASML.AS, Europe's largest tech company, saw a 19% decline in net income in the quarter, but its CEO said 2024 was a "transition year" as it looked to a strong 2025.
"European tech companies have had worse earnings revision momentum than the rest of the world so there is something happening in European growth specifically that looks a bit different to elsewhere," said Citi's Groman.
"You're still looking at growth at about 40% next year so it should be one of the fastest growing sectors and that's why we still like European tech."
Defensives outperform cyclicals year-to-date https://reut.rs/3SPbRCa
Market value of STOXX Europe Luxury 10 drops https://reut.rs/4dFsubA
European banks outperform broader market https://reut.rs/4dJo4jS
STOXX 600 earnings set to grow for first time in 5 quarters https://reut.rs/3AoFKD3
Reporting by Samuel Indyk and Lucy Raitano; Editing by Dhara Ranasinghe and Kirsten Donovan
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تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
